Saturday 4 September 2010
We have been watching the weekly Corn chart because of the enormous potential it is shows. Last
Wednesday, there was an initial breakout to the upside, and now this market is challenging previously
proven resistance at the 4.50 mark. Let's break it down. [Ignore the line in the second sentence of the
text, for it is there inadvertently]
The paragraph in the chart provides a context for the analysis and need not be repeated here. The first
important price to observe is when Corn gapped lower the week of 6 October 2008. The high of that
week was 4.48. The low of the previous week was 4.53, creating a 5 cent gap and marking a high-water
price level from which Corn has since failed to recover....until last week when price was knocking on that
door with a high of 4.52 and a close at 4.49 and 3/4. There still remains 1 cent in the gap yet to be filled.
A horizontal line has been extended across the chart to show that primary resistance, and it repelled price the week of 1 June 2008 at 4.50, and again the following week at 4.49 and 3/4, exactly where price
closed on this past Friday.
There is another smaller trading range that had developed within this larger one, and it had a failed
rally the week of 4 January and again the following week around the 4.25 area. We have drawn a second
horizontal line to capture that point, as well. Because the weekly chart is a continuation of the current
front month, what you see are Sep prices. There was a breakout of that smaller range, and there is a
daily chart to follow that shows the same breakout area on the current Dec contract.
What we can conclude from the weekly bar, extending up from the first breakout level, is that it is a
wider range bar with a close on the upper end that has very strong volume behind it. Dealing with facts
only, a wider range bar shows ease of movement, for this week, to the upside. A close on the upper end
of a bar indicates that buyers are in control. The increase in volume tells us that demand was strong, at
the same time. What can be concluded, just from the facts of last week's activity, is that price moved
higher with relative ease and had a strong close, both on a sharp increase in volume. The facts support
the conclusion that this market is strong, and at the very least, there should be some upside follow-
through next week. Now to the daily.
2
The horizontal line reaches across the 4.40 area, using Dec contract prices, and it is the same smaller
resistance line from the weekly chart. Right away, we can see that price challenged that level in early
August, the 5th. Note the high volume. Compare this bar with the bar from last week just analyzed
above. This bar had ease of movement to the upside, and volume was the highest in several months,
BUT, look at the close. It was in the lower third of the range, and what this tells us, factually, is that
SELLERS were in control, that day. We get evidence of that by virtue of price moving sideways for the
next 16 trading days to get back to that high, which has been strong resistance since January.
There is a distinction to be observed here. Note how price has been moving steadily higher with higher
swing highs and higher swing lows. That kind of developing activity is how an uptrend is defined. The
question that remains is, will the uptrend be able to exceed resistance? Yes, it does.
The first break through of resistance is with a small range bar and a weak close. Price goes lower, next
day and closes only slightly lower on increased volume. The volume bar is red, indicating price closed
lower than the previous day, but look where the close is! It was just above mid-range. For all of that
volume effort that produced a slightly lower close, we are seeing evidence that buyers were present and
brought price back to the resistance level, instead of backing away from it. We see confirmation of that
fact when price closes higher next day, third bar from the end, and virtually erases the seemingly negative
volume of the day before.
We established a long position that day at 4.45, once we saw that price could hold and close above the
previous resistance on both the daily and the weekly charts. If the assessment were correct, we needed
to see price rally higher and not go lower. The result from Friday speaks for itself. We go back to the
same analysis of the weekly bar and say that it also applies to Friday's daily bar: ease of movement up,
a strong close, and sharply increased volume. The question to ask is, is there anything negative to this
developing market activity?
None that we can see. Our action was derived by observing developing market activity and stating the
facts contained within. What those facts do is reveal the market's story! The market does advertise its
intent, and this is yet another example.
We noted that by using a Point and Figure measure, the 2+ years of sideways activity has accumulated
a substantial energy that "could" carry corn to new highs, above 7.60. Will it happen? We can never
know in advance the outcome of any given circumstance. All we know is that the possibility for higher
prices exists, right now. The 4.50 area could create more resistance, as it has in the past. It may, but
what if it does not? That is why one follows the developing market activity and go with what the market
is expressing IN THE PRESENT TENSE, for that is what helps determine future direction.
The past is the past, and the present is now, and right now price is exhibiting strength, and the
momentum is to the upside. We are aware of the past and taking it into consideration, so it is not being
ignored. As long as present tense market activity continues to confirm higher prices, we go with the
trend, the most important consideration of all.
Long Dec Corn at 4.45, awaiting new price information to either confirm or disprove the plan. Right now,
the onus is on sellers to disprove events for they continue to develop in very a positive manner. Things
could turn around next week and prove us wrong, but we cannot go on what "might" happen. Until it
does, we go on what is.
